Bank statements, tax returns, pay stubs - why is your mortgage banker asking for so much information? What does it have to do with your home loan? Isn't it an invasion of your privacy? Homebuyers often ask why their mortgage banker needs so much personal information in order to process and approve their mortgage application. Here's why.
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During the housing collapse of 2008, numerous lending practices were exposed that led to new standards and regulations for mortgage lenders in an effort to protect consumers from getting into loans they cannot afford. The government now demands that underwriting guidelines require that the lender determine more stringently that you, as a borrower, can afford the mortgage.
What a borrower may see as an invasion of privacy is really a guideline set in place to protect the borrower from being loaned money they can't afford to repay and to protect the lender from being shackled with an unpaid loan and a foreclosed property.
Documentation and the Loan Process
When you begin the loan process, your lender will ask you questions regarding employment, finances, income, assets, marital status, etc. To complete your loan application checklist, you will be asked to provide documents including but not limited to:
- Last two years W-2's and federal tax returns
- Last 30 days paystubs
- Last two months bank statements for all financial accounts (including investments)
- Evidence of alimony or child support (if applicable)
- Divorce decree (if applicable)
- Two-year residency history
- Drivers license and social security card
When your loan application is submitted, it is reviewed by a processor to make sure the information you provided within your application is complete and accurate. They will look for errors, discrepancies and other things that may need to be clarified to reach full loan approval. A loan processor works with your mortgage banker to compile your mortgage application and supporting documents to read like a story before submitting to underwriting.
These supporting documents verify several aspects of your home loan, including affordability, employment status, income qualifications, assets available for closing, non-traditional credit history, etc.
While the questions asked and documentation required may seem invasive, each item has a purpose in proving your credibility as a borrower and ultimately allowing you to finance your home purchase.
For more information about buying and financing your first home, download our free Mortgage 101 Handbook.